Money, Men and Depression- “Red” Ted Theodore

Three figures emerged from the fracas in Australia brought on by the stock market crash of 1929 and the Depression which followed. These political players were “Red Ted” Theodore, Joseph Lyons and Jack Lang. Edward Theodore, treasurer in the newly elected Scullin government, had been parachuted into the safe Sydney seat of Dalley in 1927. Theodore was seen as a Labor figure ahead of his time with foresight in financial policy. This, however, would also be his downfall as he made enemies with populist Labor leader Jack Lang as the unemployment queues lengthened. To discuss the importance of Theodore and his role in Australian history, David Moore, author of The Curse of Mungana, addressed The Sydney Institute on Monday 31 July 2017.

 

MONEY, MEN AND DEPRESSION – “RED” TED THEODORE

DAVID MOORE

 

Thank you very much for the opportunity to address you this evening, the first occasion I have visited The Sydney Institute.

Edward Theodore, one of two politicians featured in Australian Financiers, the Reserve Bank’s bicentenary biographical essays, was described as “a giant of Labor mythology, but much of his character and career remains enigmatic”. Let us examine this further in the context of the Depression era.

The 1922 Smith’s Weekly Article 

In 1922 Smith’s Weekly described Theodore as follows:

The whole Queensland legislature really consists of King George V & King Theodore I. With proxy votes in his pocket, only one legislative chamber … and no punch in the Opposition, Theodore I is monarch of Queensland. He is a strange admixture of politician, patriot, statesman & dictator. He is the sincerest and strongest man who has emerged from the ranks of Labor in a generation. The only thing that will kill Theodore is Theodore himself.

This was a prophetic statement as 1922 proved to be a watershed year. Soon afterwards, an unknowingly vulnerable Australia drifted progressively towards recession and then depression. Nine years later, at age 47, Theodore’s 22 year political career came to an abrupt end.

Theodore’s meteoric rise

In the 15 years after Theodore arrived in the Chillagoe area, with the mining industry & trade unionism in his blood, he experienced a meteoric rise. Together with his close friend, William McCormack, later the member for Cairns, he co-founded the Amalgamated Workers Association (AWA) and six years later orchestrated a “reverse takeover” of the AWU to create Queensland’s powerful political base. Within six years of entering the Legislative Assembly, he was deputy premier and treasurer, and became premier in 1919 just before his thirty-fifth birthday.

Over the following three years, he survived   ―   and learned from   ― a major disagreement with British financial institutions, re-organised the judiciary and finally orchestrated abolition of the Legislative Council. At the peak of his power he was ready to move to the wider national stage. It would take time to do this   ―   as the path was more difficult than he had planned.

Theodore, self-taught and prodigious reader, was clever, ambitious with a strong entrepreneurial streak who quickly cultivated high profile contacts. A large man with a large vision, he was also a powerful orator. He was seen as a person well ahead of his time, exemplified by his 1924 proposal to the Labor Party National Conference for an independent central bank and his support for a centralised Loan Council. His Central Reserve Bank bill was stalled by the Senate in 1930 but formed the basis of the delayed 1959 legislation. Yet, he also had the capacity to cultivate enemies, mixed with his scant recognition of conflicts of interest.

The Theodore-McCormack Relationship

To understand Theodore’s career, his special relationship with McCormack must be appreciated. Comrades in arms until 1915, they became a powerful duo:  “Theodore was the brains and McCormack was the brawn”. Thereafter their careers parted, as McCormack was sidelined as Speaker. Following in Theodore’s shadow, McCormack finally became Premier just before Theodore lost his bid for the federal seat of Herbert in late 1925. McCormack remained as premier until the 1929 state election, by which time Theodore was deputy federal leader.

After a 14 month wait, in early 1927 he was “parachuted” into the Sydney seat of Dalley, under circumstances that were revealed at a 1928 Commonwealth Royal Commission. It concluded that the sitting member was induced to resign by a £5000 cash payment from parties unknown, widely believed to be John Wren.Theodore became deputy leader after the 1928 federal election and then treasurer when James Scullin became Prime Minister in the Labor landslide   ―   only days before the Wall Street stock market crash. 

Australia in Depression 

This crash did not precipitate the Depression in Australia: the seeds here had already been planted and well-watered. The combination of escalating government debts, substantially increased during World War I and continuing thereafter, plus our heavy reliance on Britain for trade and borrowings made us vulnerable. When, in 1925, Britain unwisely reinstated the gold standard at its pre-war level, sterling was over-valued so it sentenced itself to a long recession. This decision impacted adversely on Australia, which also persisted in retaining parity with sterling until our devaluation in 1930. Vulnerability was exposed when the terms of trade declined due to lower prices for primary exports   ―   while interest rates started to increase. It was a potentially toxic mix that very few people recognised.

The prominent economist Sir Leslie Melville believed South Australia was already in depression in late 1928, with all states following suit.

 In May 1929, it was revealed no new overseas loans could be raised so expenditure had to be reined in. That situation confronted Theodore as the new treasurer. Incidentally, Melville, who worked with every treasurer from Earl Page in the 1920s to John Howard in the 1980s, in his audio memoirs nominated Theodore as the most capable of the group.

Theodore faced a difficult task as this cartoon of the February 1930 Loan Council shows. But he was soon fighting on two other major fronts. His unusual entry into NSW Labor politics displeased the powerful Jack Lang, NSW Premier 1925-27 and again from late 1930 until his dismissal by the Governor in May 1932.

The Mungana Scandal

The other issue was a relic from his Queensland political days, where his friend, McCormack, played a key role. On Theodore’s recommendation, the loss-making Chillagoe smelters in his electorate were acquired by the state in 1918. Following amended legislation in 1920, the state very quickly acquired mining leases at Mungana near Chillagoe    ―   on a royalty arrangement, unrelated to profitability. Over six years the enterprise produced losses equivalent to $40 million in today’s terms and $90 million in funding, greatly increasing the state’s deficit. In 1926, McCormack reluctantly admitted to holding a minor equity stake in the Mungana leases and the Opposition called for a Royal Commission. In 1929, during the federal election campaign, it was revealed that McCormack had consistently lied and was indeed the major shareholder, receiving nearly $1 million in today’s terms.

This precipitated the Chillagoe-Mungana Royal Commission which reported in July 1930    ―   just before Theodore was to deliver his first budget. The bombshell revelation that McCormack had promptly passed on 50 per cent of his Mungana proceeds to Theodore, who never held any direct interest, elevated the scandal to the national stage. The Commissioner concluded that McCormack, Theodore and two others were guilty of fraud and dishonesty in procuring the state to purchase the Mungana mines. While a year later Theodore and McCormack were acquitted of the civil charge of conspiracy, the taint of Mungana remained with Theodore. This is fully covered in my recent book, The Curse of Mungana.

The Mungana scandal did not directly cause Theodore’s demise: that role lay with Lang and the bitter dispute about how to counter the ravages of the Great Depression.

The timing of the Royal Commission report was appalling.  Theodore immediately resigned as Treasurer, so never participated in the critical discussions between the Commonwealth, state premiers and Bank of England representatives later that month. The politician with the most relevant financial experience and ideas was side-lined at a time when the Prime Minister was also to be absent in Britain. His place was taken by Joseph Lyons, former Premier of Tasmania, who became acting treasurer and supported the agreed deflationary cost reduction actions and balanced budgets, known as the Melbourne Agreement.

Theodore retreated temporarily to the back bench pending possible legal action by the Queensland government. He did not support this deflationary approach and returned to public life to oppose the Melbourne Agreement. A final decision was deferred until the Prime Minister returned from Britain in January 1931. When Scullin persuaded caucus to restore Theodore as deputy-leader and treasurer, it helped precipitate a crisis in the Labor Party, already troubled by the activities of Lang, who had recently been re-elected as NSW Premier. Lyons resigned and soon after left the party. 

The Battle of the PlansFebruary 1931 opened with a public clash between Theodore and Lang at the Premiers’ Conference. In what became known as “the battle of the plans” Theodore outlined a somewhat less deflationary Keynesian-style approach including a £18 million fiduciary note issue (like quantitative easing), whereas the radical “Lang plan” included a cancellation of interest payments on overseas debts, which no-one else supported. This effectively split the Labor Party, with Lang controlling the party in NSW. To make matters worse, Lyons and several Labor members then teamed up with the Nationalist Opposition in the new United Australia Party (UAP). In June 1931 a “Premiers Plan”, without the note issue, was finally adopted by all governments except NSW.

Lang versus the rest of Australia

Throughout the rest of the year, Scullin’s government struggled with Lang and it came as no surprise that late in the year Lang voted with the Opposition and the government fell. At the December election, the Labor Party won only 14 seats. It failed miserably in NSW where Lang won four seats. In Dalley, Theodore lost to a Lang Labor candidate and gained less than 20 per cent of the vote. He immediately decided to leave federal politics, where his turbulent career had lasted less than five years. 

The Aftermath

Thereafter, Theodore devoted his time to a flourishing business career, teaming up with Frank Packer in late 1932 to found the instantly successful Australian Women’s Weekly. He became chairman of Consolidated Press in 1936, a post held until his retirement in 1949.

In 1933, Theodore’s association with Packer extended to his favoured mining industry: gold mining in Fiji, with Theodore, also managing director, Packer and Wren as equal shareholders in Emperor Gold Mines.  The mid-1935 public flotation of Emperor Gold Mines NL and the smaller Loloma Gold Mines NL were heavily over-subscribed. This period witnessed the dramatic enhancement of the increasingly urbane Theodore’s business reputation. Consolidated Press and Emperor Gold Mines grew rapidly, returning high-profit growth, dividends and capital appreciation. There was no stigma arising from the collapse of his political career.

His proven financial acumen, entrepreneurial and management skills had the reverse effect. Not long before Lyons died, he apparently contacted Theodore about a possible return in a non-political role. This is precisely what John Curtin did soon after his appointment as Prime Minister.  Theodore became unpaid Director-General of Allied Works until late 1944, having extraordinarily wide powers. The Allied Works Council was immediately established and during its existence around £80 million was spent on production and support services. 

When Theodore died in February 1950, he left a significant estate of £528,000, equivalent to over $25 million in today’s values.

Perspective

This brief analysis highlights why it is so difficult to define King Theodore I. I conclude with the summary by Trevor Sykes from Theodore’s Scandal, in his book, Two Centuries of Panic:

Theodore was undeniably a man of great ability. In history he remains the most compelling of figures, a great man streaked by a flaw. Other great men have had far worse flaws. The real losers were the Australian people, who lost the one man who might have steered them out of the Depression sooner.

That flaw was his involvement in the Mungana scandal.

So, was he really the best Prime Minister Australia NEVER had? Each of you can make your own judgement.